Lawcovernotes December 2017

Aprofessional negligence claimcan end up costing youmore than you think. The quantumof a claim Regardless of the size of the law practice, a substantial professional liability can arise from any conveyance or commercial dealing, or indeed any legal matter or transaction involving a large amount. It is uncommon for the quantum of a professional negligence claim against a law practice to exceed the $2m limit of indemnity provided by the Lawcover policy; however if this does occur and the law practice has not taken out Top Up insurance they may face a potential uninsured personal liability exposure. Keep in mind that the compulsory $2m limit of indemnity is inclusive of defence costs and the costs which may become payable to the claimant. In order to investigate and respond to a claim, Lawcover may need to incur defence costs. A claimant will also seek to recover its costs of preparing and pressing the claim. The cost of both can be very significant and erode the limit of indemnity required to meet a settlement or judgment against the law practice. In a Lawcover claim, the solicitor advised a purchaser in relation to the rezoning of residential properties in Sydney. The intention of the client was to take advantage of what was advised by the solicitor as being the ability to develop the properties into residential units. Although a rezoning was planned, it was not to be implemented as advised by the solicitor. The client ended up purchasing properties without any significant development potential. The client commenced proceedings against the law practice alleging professional negligence and breach of retainer. The client mounted a “no transaction” claim alleging the purchase would not have been entered into if correct advice had been provided. The client sought to recover the full outlay on the properties (including legal costs) which exceeded $2m. Lawcover investigated the claim and it was concluded that the law practice was likely to be found liable and that settlement was warranted. The quantum was assessed as exceeding the primary limit of indemnity provided by the Lawcover policy and unfortunately the law practice did not hold Top Up insurance. Further, the solicitor had not complied with the requirements of the Law Society Scheme, so the ability to rely on it was uncertain. There was a strong likelihood that the law practice would be uninsured in respect of any amount required to be paid in excess of the limit of indemnity of the Lawcover policy. Ultimately the claim proceeded to mediation and settlement was reached for an amount which exhausted the limit of indemnity once costs were factored in. Luckily the claim was resolved and there was no personal exposure for any additional financial liability to the solicitor or his law practice. Top Up insurance affords additional protection in the event of a substantial claim being made against a law practice. Tony Reynolds Claims Solicitor 17.